You can choose a year-end after December 31, so that you can defer tax on your first fiscal year until the calendar year in which the first year-end occurs. However, you will still have to pay tax based on a December 31 year end once your first fiscal year is completed. Thus, you would be paying tax on more than 12 months of income when you first pay tax on your self-employment income.
For example, if you choose a June 30 year-end for your self-employment business which started on July 1, 2002, you would not have to report income from this business for your 2002 tax return. You would have to elect on Form T1139 to have a June 30 year-end. On your 2003 tax return you would report the income for your fiscal year ending June 30, 2003. Then you would have to add an amount for estimated earnings for July 1 to December 31, 2003. You would thus be paying tax on 18 months of income, which may put you in a much higher tax bracket. The 6 months of estimated earnings are based on your first fiscal year (July 1 to June 30) earnings. You can later convert to a December 31 year-end, so you could then eliminate the calculation of the estimated amount, and use your actual earnings instead.